New Zealand medical device maker
Fisher & Paykel Healthcare
hopes a new mask that treats sleep-disrupting breathing disorders will increase its market share by catering to the other half of sufferers: sleep-deprived partners.

Breathing masks that treat obstructive sleep apnoea [OSA] work by delivering a stream of air through the nose into the throat that stops patients’ airways collapsing. But when the mask wearer breathes out through a series of holes the action can be noisy and leads to an uncomfortable draft of air blowing on the patient or their partner, FPH chief executive
Michael Daniell
said.

FPH’s new Pilairo Q mask improved an older version by adding a filter to the breathing outlet of the masks. “The Q cover virtually silences the air and eliminates that draft," Mr Daniell said.

The new mask will be rolled out in Australia, New Zealand, Canada and the United States in October.

The $8 billion OSA market is dominated by Australian success story
­Resmed
and US company Respironics. But Mr Daniell estimated that FPH had grown its market share to about 8 per cent after entering the space just over a decade ago.

Although FPH is the ­definite third player, Mr Daniell said the company would continue to gain by beating its big competitors on innovation.

The Pilairo, for example, differed from other masks by fitting “almost everyone". Instead of multiple straps and adjustments the Pilairo uses the therapeutic air flow to inflate cushions on either side of the nose, fitting the mask snugly. This increased comfort, leading to more frequent use and a better medical outcome, he said.

FPH confident of meeting guidance

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The company has given guidance of 15 per cent revenue growth in constant currency this year.

With market growth of about 7 per cent, Mr Daniell said FPH only needed to steal “a little bit of share" to meet its guidance.

“We are really only serving a relative small percentage of the patient population," he said. “Only 20 to 25 per cent of patients that have OSA have been diagnosed and we’ve got relatively small percentage of those. And the number of patients are increasing every year from demographic changes, ageing and obesity."

Many analysts are concerned the device makers treating OSA could be forced to take a haircut in the globe’s largest market, the US, due to a new round of competitive bidding being undertaken by the government funded insurance scheme for retirees, Medicare.

JP Morgan analyst Steve Wheen estimates it will affect 6.7 per cent of Resmed’s revenue. But Mr Daniell said it will affect less than 2 per cent of FPH’s revenue.

Humidification technology under appreciated

In contrast to its small share of the OSA market, which contributes 42 per cent of revenue, FPH supplies just over half of the world’s hospital humidifiers. The respiratory and acute care division accounts for 54 per cent of revenue and stems from technology developed in the 1960s. Mechanically ventilated patients were breathing in dry air that stripped airways of mucus. The company sold its first heated humidifier in 1971. After concentrating on intensive care for a number of decades, the technology has been modified for wider use.

“We’re now taking our humidification technology to about five times as many patients as we move into non-invasive ventilation and oxygen therapy," Mr Daniell said. “Our big task is to get the message out there and have clinicians understand the effectiveness and efficiency benefits of adopting our technology and that’s really what we’re going to be doing for the next decade."

“That business is probably a little bit under appreciated by investors because there is such a focus on the OSA business [in Australia]," one analyst said.

The growth in both divisions is underpinned by the supply of consumables, which make up about 75 per cent of all revenue. For example, most hospitals will also use new tubing for each ventilated patient. This generates about $US60 of revenue per person. Similarly the masks used in OSA typically last about six months to a year before they need to be replaced.

One risk the company confronts is currency fluctuations. About half of FPH’s costs are in New Zealand dollars, but less than 1 per cent of revenue is generated there. Mr ­Daniell said the company had a formal policy of taking “quite big forex hedging positions whenever the currency cross rate is favourable" .

FPH is looking to diversify its currency mix by establishing individual country sales teams, rather than distributors that work in US dollars. FPH has also moved a significant proportion of its manufacturing to Mexico, to align its cost base with the US dollar.

The company’s share price has gained 88 per cent over the past year, compared to a 45 per cent rise for Resmed and a 33 per cent rise for the S&P/ASX200 health care index. FPH shares closed up 0.01 per cent at $3.21 on Wednesday, down from a 12-month high of $3.29 earlier this month.